Question

identify three factors that would discourage you from selecting a target company to acquire or partner with and why these factors are likely to work against a merger or acquisition.

Answer 1

In order to acquire or merge our business with another company, that target company must be attractive and profitable enough to push through. However there could be several factors which can kill the deal. Mentioned below are few of the factors which can discourage the buyer from buying a target company:

1) Hidden accounts or liabilities - During the due diligence it could be possible that a lot of hidden potential debt like items are discovered which after adjustment in the purchase price can lower the valuation of the target company and make it unattractive.

2) Extra delay - If there is unnecessary delay in a deal it could kill any deal. During this delay the valuation may go down or both the parties could loose interest in the detail.

3) Issues with earnings of the target - There could be unrealistic forecast of earnings by the management which later during the detailed analysis was discovered which makes buying the business unattractive.